Preparing North Dakota returns when the state and federal groups are different and there are members with at-risk or passive activities

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Use this procedure to ensure the correct preparation of North Dakota consolidated income tax returns if the members of the North Dakota unitary business group are different from those included in the federal consolidated group and the federal group contains members with at-risk or passive activities.

  1. Clone the parent and subsidiary clients. Open each member one at a time, choose File > Save As, enter a new client ID for the client, and click the Save button. The new client will have the same EIN and name as the original client. Creating new clients is necessary so that the federal at-risk and passive calculations for the original consolidated and member clients are not changed when the group members are changed.
  2. Add North Dakota to the parent client and the applicable subsidiary clients. Complete all data entry for these member clients. Each member's state return should be complete and correct before proceeding to the next step.

    Note: Apportionment data entry must be completed for each member client, even if the client is 100 percent in-state. The parent client and the applicable subsidiary clients must use the same apportionment method. In addition, each member's apportionment factor amounts should be entered "net" of intercompany eliminations. Apportionment data entry is accessed through View > Apportionment.

  3. Create a new consolidated client using the Consolidated entity type in File > Client Properties.
  4. Select the appropriate members to be included in the North Dakota consolidated group. Choose File > Client Properties and click the Advanced Properties button. In the Group tab, remove or add subsidiary clients as necessary. Click OK to close the Advanced Properties dialog. Click OK again to close the New Client or Client Properties dialog.
  5. Add North Dakota to the new consolidated client and choose either Consolidated - Water's Edge or Consolidated - Worldwide.

    Notes

    • When adding North Dakota to a consolidated federal client, the state automatically defaults to being a Worldwide consolidated return.
    • Intercompany eliminations are reported on Schedule WW if using the Worldwide reporting method or Schedule WE if using the Water's Edge reporting method. These elimination amounts should be entered in the appropriate field in Screen NDCon in the consolidated client.

    The type of entity on Form 40, Corporation Income Tax Return will be determined based on the composition of the consolidated return's member clients.

    • The Combined Report Method box (b) is marked if the Worldwide option is selected and only one member apportions income to North Dakota.
    • The Combined Report Method Consolidated Return box (b1) is marked if the Worldwide option is selected for two or more members.
    • The Water's Edge Method box (c) is marked if the Water's Edge option is selected and only one member apportions income to North Dakota.
    • The Water's Edge Method Consolidated Return box (c1) is marked if the Water's Edge option is selected and two or more members apportion income to North Dakota.

    If the state is added as a C Corporation to a federal consolidated group, the consolidated functionality does not take place. The amounts from each member are not consolidated and the consolidated reports are not available.

  6. Review all North Dakota consolidated client input screens and complete any necessary remaining data entry. For each category not marked in the File > Client Properties > Advanced Properties > Options dialog, enter the necessary data in the applicable input screens.

    Note: If a category is not marked, enter the data on the applicable input screens in the consolidated client. For a list of categories and related input screens, see Categories and related North Dakota input screens.

    Any changes made to the File > Client Properties > Advanced Properties > Options dialog affect both the federal and state return.

  7. Click the Consolidated folder in the North Dakota folders block. Complete any additional adjustments in Screen NDCon.
  8. To make manual adjustments in other areas of the return, click the Group View button or press F7 in the input screen field you want to adjust, and then enter the adjustment amount in the Group View dialog.
  9. To change amounts entered in the North Dakota parent or subsidiary clients, go back to the original source of data entry. For instance, if you made a mistake when you entered the apportionment of the first subsidiary, close the consolidated client and reopen the first subsidiary. Choose View > Apportionment for that client and correct the data. Close the subsidiary client and reopen the consolidated client. The correct amount is now a part of the consolidated group return.
  10. Print and review the North Dakota consolidated tax return.

Example of when the federal group contains members with at-risk or passive activities.

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